Multinational Corporations in LDCs
- Multinational Corporations (MNCs), sometimes called transnational corporations or international corporations are businesses that produce or distribute products or services in one or more foreign countries by establishing a branch or affiliate there. A branch is a part of a company that is located in another country. An affiliate is a company partially or entirely owned by another company.
- MNCs engage in foreign direct investment (FDI)-that is, investment in one country by citizens of another country. Sometimes such investment involves acquiring an existing company. In other cases MNCs undertake what is known as greenfieldinvestment by creating new facilities or activities.
- Before World War II (1939-1945), most MNCs established foreign operations to secure sources of raw materials, and developing countries were the largest recipients of worldwide FDI. After World War II the foreign activities of large corporations increased significantly. In the 1950s and 1960s large numbers of United States corporations began investing in Europe, mainly in manufacturing. Investment in other nations by European and Japanese businesses soon followed. During the 1980s and 1990s investment in the service sector by MNCs rose considerably. These postwar changes in the nature of MNC investment have changed where MNCs operate. Before World War II the share of FDI going into developing countries was around 60 percent. In the 1970s and 1980s it dropped to around 25 percent. By the mid-1990s it had risen to about 40 percent due to improving economic conditions in some developing countries.
- Most MNCs are very large corporations based in developed countries. About half of the 600 largest MNCs have headquarters in the United States; about a sixth are based in Japan; and about a tenth are in the United Kingdom. In the 1980s and 1990s an increasing number of smaller corporations expanded their production activities abroad. Similarly, an increasing number of MNCs now originate from the newly industrialized and developing areas, including Hong Kong and South Korea. These developments have been aided by technological improvements in transportation, communications, and production processes.
- The tremendous growth and spread of MNCs has sparked controversy. Some people believe that MNCs contribute to unemployment in the country where they are based by hiring foreign workers for overseas branches or affiliates. Some people also believe MNCs exploit the people and resources of other countries. However, others argue that MNCs create more jobs than they eliminate and that MNCs bring capital and technology to areas that need it.